Purchase Solution

Productivity, Inflation

Not what you're looking for?

Ask Custom Question

I need help understanding the concepts of full employment, inflationary gaps, and recessionary gaps and current level of unemployment in terms of current and potential GDP.

If a change in productivity occurs, what are the changes to equilibrium output, prices, and the unemployment level.

Assume that right now, the consensus in the economic group is that the economy is already operating below full-employment. Can you help me understand the likely effects of increasing productivity on equilibrium GDP?

Do you think the increase in productivity is likely to move the economy closer to full-employment or farther away?

Regarding inflation, how are price levels are likely to change? Assuming high levels of unemployment, and workers wouldn't be getting wage raises very easily, will the change in productivity likely increase or reduce prices in the economy?

Purchase this Solution
Solution Summary

How productivity affects employment and price level

Solution Preview

When the economy is operating at full employment, any attempt to stimulate economic growth will result in inflation. This is because companies cannot find enough workers to efficiently increase output. They must pay existing workers more as competition for them from other companies intensifies. The increase in wages is passed on as increased prices to consumers.

When productivity increases, workers can do more with fewer resources. This enables the economy to expand ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Productivity & Process Improvement

    What is the problem with using $$ as part of a productivity measure? 4. What is inflation and what causes it? What is the point of company's trying to improve productivity?

  • Productivity

    Please refer to the attached Excel document about productivity measures. 1. I have also adjusted the 2007 number for inflation. Please see the cell formulas for the calculations. 2.

  • Interest rates

    - Inflation high inflation => currency loses value quicker => foreigners do not want to hold your currency because it is going to inflate and buy less goods the next year => depreciates productivity high productivity => more goods are produces

  • Productivity often rises during economic expansions and fa

    The losers from inflation are those on incomes fixed in nominal terms or, at least, those with incomes that do not increase as fast as the rate of inflation. Creditors and savers also lose.

  • Comparative advantage and absolute advantage

    This solution discusses comparative advantage and absolute advantage, how interest rates, inflation, productivity and income affect exchange rates, and how e-business has impacted the stock market.

  • Testimony of Chairman Alan Greenspan

    2) How did he characterize the impact of productivity on pre-tax profits and what was the impact on hourly wages? 3) What is the consequence of the above statement and what is his outlook. 4) Is he sanguine about inflation?

  • local currency

    Once again we have no information about inflation rates and so the explanation is based on the assumption that the inflation rates are the same.

  • marginal product theory

    The price level will drop, because Philips Curve indicates a lower inflation rate when there is a higher unemployme An increase in productivity is inferred.

  • Relation between Productivity Growth and Inflation

    255437 Macroeconomics Suppose worker productivity increased at the rate of 1.9% per year. If the labor force grew by 1.5% per year, what rate of increase in RGDP would be sustainable without increasing inflation pressures?

View More Related Solutions